Panelists Assess Ramifications of Health Care Overhaul

Apr. 20, 2010

UT Dallas School of Management Professor John F. McCracken predicts that the health care overhaul that Congress enacted last month will lead to “a change in the social compact” underpinning medicine in the United States and “a reorganization of the way health care is delivered.”

John F. McCracken

McCracken, clinical professor of health care management, made his forecasts at a forum that the School of Management Advisory Council presented two days after President Barack Obama signed the Patient Protection and Affordable Care Act into law.

The council asked top local experts to explore health care cost-containment strategies at the March 25 event. Besides McCracken, the panel included J. Darren Rodgers, the president of BlueCross BlueShield of Texas; Britt R. Berrett, the president of Texas Health Presbyterian Hospital Dallas; and Mike Haefner, Atmos Energy's senior vice president of human resources.

The law firm of Haynes and Boone LLP hosted the speakers at its Dallas headquarters. SOM Advisory Council chairman Terry Conner, the firm’s managing partner, gave welcoming remarks.

Terry Conner

On the calendar well in advance of congressional action on the overhaul, the forum was not designed to “go deep into the new legislation,” Conner said.

But McCracken presented an initial analysis. “This is an insurance bill,” not a health care bill, he said. “It’s doesn’t deal with access. It doesn’t deal with quality. It doesn’t deal with costs. Those are off the radar screen. This deals with insurance.”

A decade from now, he believes, “sociologists are going to look back and say the real effect of this bill was to transform what for the last 70 years has been regarded as a benefit into a tax and subsidy program.”

“My personal belief is that [program] is going to fundamentally change the social compact between individuals, employers and government in ways that we don’t understand yet.”

Darren Rodgers

Although the new act requires most citizens and legal U.S. residents to obtain health insurance, McCracken said more than 60 percent of the American public is eligible for subsidies under its provisions. “The subsidies are available to everybody over 65, everybody up to the age of 26 and everybody with $72,000 in income or less,” he said.

Cost pressures arising from eligibility, along with some tax changes and new profit incentives the act creates, he said, will lead to an initial health care-cost explosion. That, in turn, will contribute to a movement away from our current fee-for-service system to “to episode or bundled payments. That means in five to 10 years, providers are going to be given a single payment to treat an episode of care.”

And this new construct, McCracken theorized, will lead to a fundamental realignment of hospitals, physicians and other care providers, such that relationships, behaviors and delivery will differ substantially from the status quo we know now.

Rodgers said BlueCross BlueShield has divided Texas into 28 health care markets, in terms of cost and utilization trends, and rates Dallas the most expensive city “in a state that is one of the most expensive states in the country.”

Britt Berrett

He showed a recent “trend tree,” a graph illustrating that the major components of cost and utilization are inpatient facilities, or hospitals; outpatient facilities, such as free-standing surgery and other treatment centers; and physicians and other medical professionals. “The major driver, outpatient facilities, is contributing about 40 percent of the increases we’re seeing in health care and health insurance,” Rodgers said.

He also noted that “health care economics are not like regular economics” when technology is involved. In most businesses, technology and innovation reduce costs, Rodgers said, “but in health care, they do not. They increase costs.”

“Expenses are not slowing down” Berrett, a UT Dallas Ph.D. alumnus, agreed. He cited the high costs of sophisticated new tools, such as $10 million for an operating room magnetic-resonance-imaging machine; expenditures for updating information technology, such as electronic record-keeping capabilities, and investments in specialized employee training for personnel ranging from housekeepers to nurses and doctors.

“We estimate that on the average it’s $15,000 to $20,000 per employee to train them,” Berrett said. “And that’s not even talking about a critical-care nurse or a neurosurgeon. Those dynamics are not slowing down. They are moving forward at a rapid rate.”

Mike Haefner

Atmos Energy spends $42 million a year on health care coverage for its 4,700 employees and their 6,300 covered dependents, Haefner reported. “The health of our employees is deteriorating at about the same rate as the general population,” he said. A key worry is the obesity rate, which has more than doubled since 1990.

With that in mind, Haefner said, the company is trying to influence employee behavior. Workers’ health is too important to leave only to medical professionals, he said. “Improve employee health, and financial benefits will follow.”

Dr. Forney Fleming, director of the School of Management M.S. in Healthcare Management Program, moderated the forum. Asked how accountable-care organizations will be impacted by health care reform, he said, “The way physicians deliver care has to be changed.”

The School of Management Advisory Council, a 37-member volunteer group of executives who provide leadership and assistance in enhancing school programs and goals, offered the forum as a resource that could benefit members and guests in their business endeavors while also providing non-members an interesting and useful introduction to the school.

A downloadable audio recording of the forum, bios of the speakers, slides they used and other materials are available at the Haynes Boone Past Events Web page.